Hong Kong protests: is the city still appealing for international business?

The situation is especially grim for local brands as visitor arrivals plunged by 43.7% on year in October. Photo: SCMP.

With the political and societal upheaval in Hong Kong showing no signs of ending anytime soon, the threat to doing business in the city for international brands is being drawn into the politics of the day, industry experts say.

The city has been rocked over the past by six months by its citizens protesting over a controversial extradition bill, which has since been withdrawn and expressing their unhappiness with how China is governing the island.

The protests have turned violent in nature, with police and protesters engaging in street battles every week as protesters want their four other demands, including universal suffrage, be met by the Hong Kong and Chinese central government.

“We have seen a number of local brands such as Cathay Pacific, communicate support, primarily as many of their staff are directly involved, only to incur the displeasure of Beijing,” Darren Woolley, the founder and global chief executive of TrinityP3 tells The Drum.

“While we talk about the importance of brand purpose, it is interesting that research shows this does not extend to brands participating in politics. Social issues yes, charities and supporting community interests, definitely. But playing politics is often a dangerous game and best left to diplomats and politicians.”

Brands that have waded into the situation in Hong Kong have found, much to their detriment, that the fury of China and its citizens can be overwhelming.

When NBA team Houston Rockets’ general manager Daryl Morey tweeted his support for the protests, Chinese tech giants Tencent and Vivo, and coffee brand Luckin Coffee cut ties with the NBA.

Chinese state broadcaster CCTV also suspended all broadcasts of upcoming NBA preseason games and Rockets’ main sponsor Shanghai Pudong Development Bank cut ties with the team. All Rockets merchandise was also removed from Alibaba’s e-commerce Taobao platform.

Even DC Comics was not spared after the American comic book publisher released an image that was part of its promotion of Frank Miller and Rafael Grampá’s upcoming Batman title Dark Knight Returns: The Golden Child, which spurred an angry backlash in China.

The image showed Batwoman throwing a molotov cocktail against a backdrop of pink lettering reading: “The future is young”.

After it was shared on DC’s social media, the image was slammed by Chinese Internet users, who claimed the image is a gesture of support for the protests in Hong Kong.

Upset Chinese Internet users point to the flaming bottle as mirroring the tactics used by young protesters in Hong Kong, Batman’s black outfit to the black clothes of the demonstrators, and the titular golden child to the colour yellow, which pro-democracy activists adopted for protests held in Hong Kong five years ago.

DC eventually removed the image.

Pro-Beijing brands have also not been spared. Snacks chain Best Mart 360 has seen a large portion of its 102 stores in the city vandalised throughout the social unrest because of the group’s alleged links to Mainland China political bodies. Some of the stores have been repeatedly thrashed even after restoration.

Pocari Sweat, the Japanese sports drink giant pulled its ads from TVB, Hong Kong’s largest television station, accusing TVB of displaying pro-Beijing sentiments in the station’s coverage of the extradition bill protests.

F&B outlets Starbucks and Yoshinoya also saw their stores thrashed and vandalised. Protesters taped signs outside of Yoshinoya shops denouncing the beef bowl chain after rumours emerged that it had fired employees over a Facebook advertisement that mocked police officers.

Starbucks, which is operated by Maxim's Caterers in Hong Kong, was targeted when the daughter of the group's founder condemned protesters as "violent" at the UN Human Rights Council in Geneva.

For publishers like SCMP who are covering the protests, businesses move towards brand-safe advertising means adding the protest coverage to the list of unsafe, inappropriate, incompatible content.

Advertisers have asked to pause or postpone content campaigns because of the ongoing protests and Alibaba-owned publisher’s eight-month-old in-house agency, Morning Studio has worked to accede to their requests.

“Doing business with and in China has always been challenging. Of late it has proven to be a geopolitical minefield for brands,” says Andrew Au, the executive director of Eight Inc.

“Whilst Hong Kong was a strategically important regional hub for China and Asia Pacific, it's hard to argue that its status in the region hasn't waned. Hong Kong has historically punched above its weight in terms of the influence but ultimately Hong Kong is a city with a population of 7 million people which means it is not a big market for many international brands.”

He continues: “For certain segments, like luxury, Hong Kong represents a significant source of revenue but for other segments like automotive, FMCG, unit sales in the grand scheme of things are but a fraction of the total Asia Pacific pie.”

Dark and gloomy

The situation is especially grim for local brands as visitor arrivals plunged by 43.7% on year in October to 3.31 million, according to the Hong Kong Tourism Board.

The government has also confirmed the city has entered its first recession for a decade because of the protests, as figures showed the economy shrank 3.2% in the July-to-September period compared with the prior quarter.

This has forced Chow Tai Fook, the world’s largest listed jeweller, to close up to 16 outlets in Hong Kong and is seeking a 20 to 50% reduction in rents from landlords when renewing leases from October to March 2020.

The group reported a 48% plunge in same-store sales in Hong Kong and Macau in the October 1 to November 21 periods. Rival Luk Fook is reportedly also planning to make the same moves.

Sasa International, the biggest cosmetics retailer in Hong Kong, will close all its 22 stores overseas in Singapore and cut 170 jobs to save costs as it struggles to stem six years of losses.

While consumer-facing sectors have been undoubtedly affected, Arun Sudhaman, chief executive officer and editor-in-chief of The Holmes Report believes Hong Kong is a resilient place, demonstrated by Alibaba’s $11.2 billion secondary listings last week, the largest IPO this year.

“Anecdotal evidence suggests that many brands have paused media spending. That has impacted the marketing and media sectors but, so far, there do not appear to have been any major layoffs,” says the Hong Kong resident of 40 years.

“Instead, it may be that companies are starting to incorporate a certain level of unrest within the cost of doing the business in Hong Kong.”

Woolley agrees, saying that the media and marketing sectors will continue to do business, while there is business to be done. However, he notes many are taking a low-key approach during this time.

“There may come a time when Hong Kong is no longer the major strategic port and city it has been in the past. When this happens then marketing and media will need to have decided if this is where their future business opportunities lie,” he adds.

According to Au, international media companies that are currently regionally headquartered in Hong Kong are also seriously considering their options and commitment to remain to be regionally headquartered in Hong Kong.

The Hong Kong government has tried to prevent this by taking outs ads in business publications like the Australian Financial Review to reassure investors the city is stable and the economy is strong.

What should brands do?

With the recent local elections, there is an increased incentive for businesses to want to build rapport with the groundswell of local support, says Woolley, but this is dangerous for international businesses.

The local elections saw more than 2.9 million people turned out to vote. 18 district councils flipped to pro-democratic control and saw pro-democracy candidates take nearly 90% of the seats up for grabs.

“We have seen the unrest in Hong Kong become a political battleground between the politics of the West and China and international businesses supporting the pro-democracy movement could easily be positioned in China as simply being puppets of the Western politicians,” adds Woolley.

Au, who left Hong Kong in 2013 and has lived in Singapore since, says while he is not very familiar with what brands have been doing since the protests and unrest started, he generally has not heard of or seen any brands be overtly political.

He explains if anything, brands are trying to keep a low profile and stay under the radar and believe there are some small individual owned businesses (eg. cha chaa tengs, also known as local cafes) that have openly supported the protests and have endeared themselves to the anti-government crowds.

“I don’t believe the reason is particularly strategic or business-minded rather the owners of those businesses believe passionately about what’s going on and identify with the protestors’ efforts and want to support them,” Au adds.

Sudhaman points out that realistically, the only brands that are able to support the protests are those that do not also rely on Mainland China, which really only leaves small, local players. This is because most major brands in Hong Kong also count extensive mainland operations and cannot afford to anger Beijing.

“Some of them (Cathay Pacific, most notably) have been forced to publicly denounce the protests. Companies that are seen as being too pro-China (Yoshinoya and Best Mart 360, for example) have faced boycotts and worse,” he explains.

“Accordingly, it’s a very tricky situation for brands in Hong Kong — they have to walk the tightrope of retaining the trust of their employees and local consumers while also keeping Beijing happy.”

Who wins in the end?

There are many who believe Singapore, which has been a traditional rival for Hong Kong because of its similar characteristics of being self-governing, Chinese-majority, financial, commercial and shipping hub, will stand to benefit from the unrest.

Goldman Sachs has estimated that more than US$4bn in capital has left Hong Kong for Singapore while the Monetary Authority of Singapore said that foreign-currency deposits by non-bank customers rose 52% to a record S$12.8bn (US$1.63 billion) in August, compared with S$8.4 billion a year ago.

Singapore also saw a sharp uptick in foreign currency in deposits in July and August.

For expats in Hong Kong, who were already looking to move elsewhere because of soaring flat prices, a high cost of living, and long working hours, the protests are a further motivation to move.

“Are there any winners from this situation? There is already evidence of capital outflows to Singapore, while other Asian cities will also be benefiting as Chinese tourists and international students avoid Hong Kong,” says Sudhaman.

“There does not appear to have been a major exodus of corporate HQs or expatriate workers just yet, although it is a common topic of conversation. Singapore seems well placed to me — an easy place to do business and attractive to international workers, without any of the political turbulence that is eroding many of HK’s perceived advantages.”

While there are certainly opportunities for regional hubs such as Singapore to gain even greater benefit from the unrest, Woolley points out the Chinese government is also taking steps to secure their position.

It recently announced a significant investment in nearby port and city of Shenzhen to upgrade the port, airport, and infrastructure to make it a truly world-class technology business hub and international city and a viable alternative to Hong Kong

Despite the doom and gloom, one bright spot remains for Hong Kong in its attempt to retain brands - It will hold on to its status as the world's most popular city with international visitors in 2019.

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